Are gains on stocks taxable? Full US guide

Are gains on stocks taxable?

Are gains on stocks taxable? Short answer: in the United States, gains on stocks and similar securities are generally taxable when they are realized — usually when you sell or otherwise dispose of the shares — but the rate and timing depend on holding period, account type, income level and several special rules and exceptions explained below.

Overview of capital gains and taxable events

A capital gain is the difference between the sale proceeds you receive and your cost basis in the stock (typically the purchase price plus fees and adjustments). In general, gains are taxed only when realized — that is, when you sell the stock, exchange it, or trigger another taxable disposition. Merely seeing an increase in value while you still hold the shares (an unrealized or paper gain) does not create a U.S. federal tax bill for most taxpayers.

Realized vs. unrealized gains

Unrealized gains are increases in market value that exist only on paper. You do not report or pay tax on them until a taxable event occurs. Realized gains occur when you sell, exchange, or otherwise dispose of the asset. Certain corporate actions (some mergers, spin‑offs, or involuntary conversions) can also trigger realization events. In taxable brokerage accounts, most sales are reported to you and the IRS by brokers on Form 1099‑B.

Short‑term vs. long‑term capital gains

Holding period matters. If you hold a stock one year or less (365 days or fewer from acquisition to sale), any gain is short‑term and taxed at ordinary income tax rates. If you hold the stock for more than one year (366 days or more), any gain generally qualifies as a long‑term capital gain and is taxed at preferential federal rates. Choosing when to sell can materially affect tax owed.

Typical long‑term capital gains rates and thresholds

Long‑term capital gains federal rates are typically 0%, 15% or 20%, depending on taxable income and filing status; these thresholds are indexed for inflation and may change. High‑income taxpayers may face additional surtaxes (see NIIT below) or higher effective rates. For example, taxpayers with taxable income above certain top thresholds can face the 20% long‑term rate plus the 3.8% Net Investment Income Tax on qualifying investment income.

Dividends, qualified dividends, and other investment income

Dividend income is taxable when received (or deemed received). Qualified dividends — dividends paid by U.S. corporations and certain qualified foreign corporations that meet holding‑period and source tests — are taxed at the same preferential long‑term capital gains rates. Ordinary (nonqualified) dividends are taxed at ordinary income rates. Interest income (bank interest, most bond interest) is typically taxed as ordinary income, not at capital gains rates.

Net Investment Income Tax (NIIT) and other surtaxes

The Net Investment Income Tax (NIIT) is an additional 3.8% tax that can apply to net investment income, including capital gains, for individuals whose modified adjusted gross income (MAGI) exceeds statutory thresholds. As of current guidance, MAGI thresholds for NIIT are $200,000 for single filers and $250,000 for married filing jointly (verify current thresholds each year). Other surtaxes or alternative minimum tax (AMT) issues can affect high‑income taxpayers. Tax law can change; monitor official IRS updates and state proposals.

Tax‑advantaged accounts and tax deferral/avoidance

Sales within tax‑deferred or tax‑exempt accounts do not trigger immediate capital gains tax. For example:

• Traditional IRAs and 401(k)s: trades inside these accounts are not currently taxable, but withdrawals are generally taxed as ordinary income (when withdrawn) unless after‑tax contributions or Roth conversions apply.
• Roth IRAs: qualified withdrawals are tax‑free, and trades inside the account are not taxable while assets remain inside the Roth.
• Health Savings Accounts (HSAs) and certain 529 plans: similar tax advantages for qualified uses.

If you trade stocks on a platform, consider custody and account type. For crypto or Web3 wallets, Bitget Wallet is a recommended option when you want integrated custody and tax‑reporting features tied to Bitget services. For taxable investing with clear reporting, a brokerage that issues comprehensive year‑end statements and Form 1099‑B (Bitget’s brokerage services where applicable) simplifies reporting.

Cost basis and methods for calculating gain

Cost basis is generally what you paid for the shares plus commissions and other acquisition costs and adjusted for stock splits, mergers, or certain corporate actions. Common basis methods include FIFO (first‑in, first‑out), specific identification (you select which lots are sold), and average cost (allowed for certain mutual funds). Choosing specific identification can let you manage gains and losses more precisely — but you must document the lot identification at the time of sale.

Reporting and tax forms

Brokers report sales of stock and capital gains/losses to both you and the IRS. Common forms include:

• Form 1099‑B: issued by brokerages; lists proceeds, dates, and cost basis data (when available).
• Form 8949: used to report sales and adjustments; each sale is entered unless fully summarized per IRS rules.
• Schedule D (Form 1040): summarizes capital gains and losses and carries totals to your tax return.

When broker basis reporting is incomplete or incorrect, you must reconcile and enter correct figures on Form 8949 and Schedule D. Keep trade confirmations, year‑end statements and cost basis worksheets to support numbers.

Capital losses, offsetting gains, and carryovers

Capital losses can offset capital gains dollar for dollar. If losses exceed gains in the tax year, up to $3,000 ($1,500 if married filing separately) of net capital loss can be used against ordinary income; the remainder may be carried forward indefinitely to offset future capital gains or up to $3,000 per year of ordinary income.

Wash sale rule

The wash sale rule disallows a loss deduction when you sell stock at a loss and buy substantially identical stock within 30 days before or after the sale. The disallowed loss is added to the basis of the newly acquired shares, deferring the loss until that lot is sold in a permitted transaction. Wash sale rules apply to taxable accounts and to purchases in accounts under the taxpayer’s control, including IRAs in some cases, so be careful with timing and account mixing.

Special situations and exceptions

Inherited stock (step‑up in basis)

When you inherit stock, the cost basis generally steps up (or down) to the asset’s fair market value on the decedent’s date of death (or the alternate valuation date if used). That stepped‑up basis often eliminates capital gains that accrued during the decedent’s lifetime; if you sell immediately, you may have little or no realized gain.

Gifts of stock

Gifted securities generally carry over the donor’s basis for purposes of gains; the recipient’s basis equals the donor’s basis (adjusted for any gift‑tax basis adjustments). Special rules apply if the fair market value at transfer is below the donor’s basis and the recipient later sells at a loss.

Employer stock, restricted stock, and options

Employee equity compensation has specific tax rules. Restricted stock units (RSUs) are generally taxable as ordinary income when they vest (with basis equal to the amount included in income), and subsequent sales produce capital gain or loss based on holding period from vesting. Nonqualified stock options (NQSOs) usually create ordinary income at exercise (difference between fair market value and exercise price), while incentive stock options (ISOs) have special AMT and holding‑period rules for favorable long‑term capital gains treatment if qualified holding periods are satisfied. Employer equity taxation is complex; keep plan documents and confirm taxable events with HR/payroll and your broker.

Mutual funds and ETFs

Mutual funds and ETFs realize gains when they sell underlying securities. Funds routinely distribute realized capital gains to shareholders; these distributions are taxable to the shareholder even if the shareholder did not sell fund shares. ETFs often have structural advantages that reduce taxable distributions, but distributions can still occur. Check a fund’s year‑end tax information and 1099‑DIV for distribution details.

Corporate actions (spin‑offs, mergers, stock splits)

Corporate events can affect your basis and tax treatment. Stock splits change the number of shares and adjust basis per share but do not trigger realization. Mergers, acquisitions, spin‑offs and certain reorganizations can produce complicated basis allocations or taxable events. Brokers often provide guidance, but you may need the company’s transaction notices and Form 1099s to report correctly.

State and local taxation

State and local tax treatment of capital gains varies. Many states follow federal treatment and tax capital gains at ordinary income rates or separate capital gains rates. Some states have no income tax and therefore no capital gains tax. State policy can change quickly; for example, as of January 2026 some state proposals and ballot measures are drawing attention for potential tax changes aimed at high‑income residents. As of January 2026, according to MarketWatch, proposals in states such as California and other jurisdictions have renewed debate about taxing the wealthy, with polls showing public support for higher taxes on billionaires (a YouGov poll cited by MarketWatch found roughly 62% of respondents said billionaires pay too little tax). Check your state tax authority for current rules.

International investors and cross‑border issues

Nonresident aliens and foreign entities face different withholding and filing rules. U.S. source dividends and certain capital gains may be subject to withholding or treaty rules, and nonresidents generally are taxed only on U.S. source income and effectively connected income unless treaty provisions apply. U.S. persons owning foreign financial assets must consider additional reporting obligations (e.g., FBAR — FinCEN Form 114 — and Form 8938 under FATCA) when thresholds are met. Cross‑border taxation is complex; consult tax advisors familiar with international rules.

Common tax‑planning strategies

Investors commonly use several strategies to manage capital gains tax exposure. These include:

• Holding assets more than one year to qualify for long‑term rates.
• Tax‑loss harvesting: realize losses to offset gains and reduce taxable income.
• Timing sales across tax years to manage taxable income and stay in favorable brackets.
• Using tax‑advantaged accounts (IRAs, 401(k)s, Roth IRAs) to defer or eliminate tax on trades.
• Gifting appreciated stock to charity to get a charitable deduction and avoid realizing the gain.
• Managing domicile or state residency before large realizations (subject to legal and timing complexities).

These are general strategies and not individualized tax advice. Each taxpayer’s circumstances differ; consult a CPA or tax attorney for specific planning.

Recordkeeping and practical considerations

Good recordkeeping makes accurate reporting easier. Keep:

• Trade confirmations and broker cost basis reports.
• Year‑end statements and Forms 1099‑B and 1099‑DIV.
• Records of corporate actions, dividends, splits and mergers.
• Gift, inheritance and estate documents (for basis tracking).

If you use an integrated platform such as Bitget for trading or Bitget Wallet for custody, download and archive year‑end statements and tax documents provided by the platform to reconcile with your tax return.

Penalties, audits, and compliance risks

Underreporting capital gains or incorrectly reporting basis can result in penalties, interest and potential audits. The IRS typically matches broker Forms 1099 to tax filings; discrepancies can trigger an inquiry. Respond promptly to IRS notices, and reconcile broker records with your Form 8949 and Schedule D. For complex transactions or large gains, professional tax help reduces risk.

Examples and numeric illustrations

Example 1 — Short‑term vs. long‑term sale

Purchase: 100 shares at $50 = $5,000 basis. Sale A (short term): sell after 9 months for $80 = $8,000. Realized gain = $3,000; taxed at ordinary income rates. Sale B (long term): sell after 18 months for $80 = $8,000. Realized gain = $3,000; taxed at long‑term capital gains rates (0/15/20% depending on income).

Example 2 — Loss offsetting and carryover

Year 1: Sold stock at a $10,000 loss and realized $6,000 of gains from other sales. Net capital loss = $4,000. You can use $3,000 against ordinary income this year and carry forward $1,000 to subsequent years.

Example 3 — Wash sale

You sell 100 shares at a $2,000 loss on December 10. On December 20 you buy 100 substantially identical shares. The December loss is disallowed and added to the basis of the new shares; loss becomes deferred until those new shares are sold in a non‑wash transaction.

Are gains on stocks taxable — repeated practical check‑list

When determining whether and how much tax you owe, verify these items:

• Was the gain realized (sale, exchange, corporate event)? — if not, generally not taxable now.
• How long was the holding period? — ≤1 year or >1 year affects rate.
• Was the sale inside a taxable account or a tax‑advantaged account?
• Are there offsets (capital losses) or special surtaxes (NIIT) to consider?
• Is cost basis correct and documented?

As you review, recall the central question: are gains on stocks taxable? For taxable accounts, the default answer is yes when realized, subject to the rules above.

See also

• Capital gains tax
• Qualified dividends
• Net Investment Income Tax (NIIT)
• Tax‑advantaged retirement accounts
• Wash sale rule
• Form 8949 and Schedule D

References and sources

This article is based on authoritative guidance and investor education resources. Readers should consult the IRS and a tax professional for personal advice. Examples of sources used in developing this guide include: IRS Topic No. 409 (Capital Gains and Losses), brokerage tax guides (year‑end Form 1099 and 1099‑B guidance), major financial educator sites and investment firms’ tax summaries. As of January 2026, according to MarketWatch, state‑level proposals and polling have renewed public debate over higher taxes on wealthy residents (MarketWatch reporting and YouGov poll results referenced in news coverage). Check the latest IRS publications and state tax authority announcements for current thresholds, rates and reporting rules.

Further practical steps

If you trade stocks in taxable accounts, download your year‑end broker statements and Form 1099‑B early, confirm cost basis and holding periods, and consider year‑end tax‑loss harvesting where appropriate. Use reliable custody and reporting tools — for Web3 assets or integrated custody, consider Bitget Wallet and Bitget’s reporting features — and consult a tax professional when you have complex equity compensation, cross‑border issues, or material realized gains.

Final notes and next steps

Are gains on stocks taxable? The consistent rule: realized gains in taxable accounts are generally taxable at federal (and often state) rates, with the rate depending on holding period and income. Keep careful records, understand account types, and use available planning tools to manage tax exposure. To explore trading and custody options that offer clear reporting and integrated tools, learn how Bitget and Bitget Wallet support taxable and tax‑advantaged workflows and download your tax documents at year end.

Important: This article provides general information only and does not constitute tax advice. Consult the IRS and a qualified tax advisor for guidance tailored to your situation.